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    Top Ag Chem Stock Mosaic Poised to Resume Growth on Robust Q2 FY2011 Results

    Mosaic Company (NYSE: MOS) shares have nearly doubled during the second half of 2010 driven by the rising demand for fertilizers, and shares took the last week to consolidate these huge gains, trading in the range of $75.00. However, on December 4, shares of MOS rose 3.2% to $77.40 in the after-hours session after the company’s quarterly results outperformed the analyst consensus projections.

    MOS is one of the world’s leading producers and marketers of concentrated phosphate and potash crop nutrients, The company reported net earnings of $1.0 billion, or $2.29 per diluted share, for the second quarter of fiscal 2011. The second-quarter results include an after tax gain of $570 million, or $1.28 per share, on the sale of its interest in Fosfertil S.A.  These results compare with net earnings of $107.8 million, or $0.24 per diluted share, for the second quarter of fiscal 2010. Excluding the gain, MOS earned $1.01 a share.

    MOS’s revenue in the second quarter of fiscal 2011 grew 59% to $2.7 billion, compared to $1.7 billion in the same period last year. The company’s gross margin for the second quarter of fiscal 2011 was $768.3 million, or 29% of net sales, compared with $307.0 million, or 18% of net sales, a year ago; due to significantly higher phosphate selling prices and potash sales volumes. Analysts polled by Thomson Reuters expected earnings of $0.91 a share on a 42% sales rise.

    The company’s robust results was positively influenced by increasingly strong demand for fertilizers that are supported by profitable farm economics worldwide, record low producer inventories, a lean global distribution pipeline and strong farmer economics.  Prices for agricultural commodities have reached extraordinarily high levels compared to historic standards, thus sending clear signals to farmers worldwide to plant more area and apply more technology, including fertilizer, to their crops.

    Fertilizer, like many commodities, rises and falls dramatically in price, and the volume sold varies considerably from year-to-year, as farmers load up on nutrients in anticipation of strong crops prices. Growth in China, India, Brazil and other emerging areas around the globe are generating a surge in demand.  MOS has estimated that global phosphate shipments climbed to a record level of 57.0 million tonnes in calendar 2010 and could increase to 59 to 61 million tonnes in calendar 2011. Meanwhile, Potash Corporation of Saskatchewan (NYSE: POT) estimated that 2010 global demand for potash exceeded 50 million tons and could grow by more than 10% to 55 million-60 million tons range in 2011.

    Buoyed by strengthening market conditions, MOS expects the total sales volumes for the Phosphates segment to range from 2.4 million tonnes to 2.7 million tonnes for the third quarter of fiscal 2011. The company’s realized diammonium phosphate (DAP) price is estimated to range from $510 to $540 per tonne for the third quarter of fiscal 2011.  During the third quarter of fiscal 2010, MOS’ sphosphate sales volumes were 2.5 million tonnes and the average DAP selling price ranged around $336 per tonne.

    Meanwhile, total sales volumes for the Potash segment are expected to range around 1.9 to 2.1 million tonnes for the third quarter of fiscal 2011. MOS’s realized muriate of potash (MOP) price, for the third quarter of fiscal 2011, is estimated to range from $330 to $350 per tonne. In the similar period of 2010, the company reported potash sales volume of 1.9 million tonnes and the average MOP selling price was $356 per tonne. Moreover, the company’s Potash production capacity, which has grown 10% since 2006, is expected to increase another 60% between now and 2020.

    Rapidly rising prices for a number of key crop commodities pushed fertilizer industry past the inflection point, as demonstrated by stronger demand and pricing momentum for all nutrients. Given the ongoing need to improve global food productivity and the significant void that must be filled after two years of reduced fertilizer movement and applications, the company is positioned to wipe away the 2009 plunge in results and commence a new cycle of growth.

    The growing demand and pricing for fertilizers would, certainly, fuel a growth in earnings and could drive a better valuation for MOS, going forward. To reduce the dependence on its phosphate business, the company is in the middle of a $5 billion campaign to boost its potash capacity by more than 5 million tonnes over the next 10 years. Accordingly, the volume growth in a solid pricing environment could make MOS’s stock to maintain the ascending track.

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